TMI Blog2014 (9) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered towards cost of production as per rule 9A, he has failed to examine the assessee's claim under section 37(1) of the Act. In this context, it is to be noted that the hon'ble Madras High Court in the case of Prasad Productions P. Ltd. [1989 (1) TMI 38 - MADRAS High Court] has held that even if expenditure relating to positive prints, etc., is not allowable under rule 9A, but, the same can be allowed under section 37(1) of the Act, as it is incurred in connection with the business. It is not disputed either by the Assessing Officer or by the Commissioner of Income-tax (Appeals) that the assessee has incurred the expenditure in connection with the business of production of film. Therefore, applying the ratio laid down by the hon'ble Madras High Court as well as the decisions of the Tribunal, we allow the assessee's claim that the expenditure incurred is to be allowed under section 37 of the Act, even though it may not be allowable under rule 9A. Further, the assessee is also eligible to set off the expenditure incurred against profit of P-5 under section 70(1) of the Act. Accordingly, we allow the grounds raised by the assessee and direct the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -5. On the aforesaid basis, the Assessing Officer called upon assessee to explain why profit of one film is set off against loss of another contrary to rule 9A. In reply to the query made by the Assessing Officer, the assessee submitted that as per section 70(1) of the Act, the assessee can set off loss against the income from any other source under the same head. The Assessing Officer, however, was not convinced with the submissions of the assessee and held that as rule 9A of the Income-tax Rules is a part of the statute and specifically stipulates the mode of carry forward of loss in case of picture released within 90 days, provisions of rule 9A has to apply. Accordingly, the Assessing Officer rejected the assessee's claim of set off of loss of P-6 against profit of P-5 and determined the income at ₹ 51,00,888. Being aggrieved of the assessment order so passed, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). 4. In course of hearing of appeal before the Commissioner of Income-tax (Appeals), the assessee made elaborate submissions with regard to claim of set off of loss. On the basis of the submissions made by the assessee, the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed by the assessee to be set off against profit of P-5, the Commissioner of Income-tax (Appeals) disallowed an amount of ₹ 83,83,593 by applying rule 9A and allowed an amount of ₹ 1,80,100. On the aforesaid basis, he directed the Assessing Officer to determine the assessee's total income at ₹ 49,20,788. 6. The learned authorised representative submitted before us, the expenditure towards positive prints and advertisement expenses though, may be allowed under rule 9A of the Income-tax Rules, but, the same having been incurred as expenditure by the assessee towards film P-6, it is allowable under the general provisions of section 37(1) as business expenditure. The learned authorised representative submitted, when there is no dispute to the fact that the assessee has incurred such expenditure in connection with its business of film production, then, it has to be allowed as a business expenditure in terms with section 37(1). Further, as per the provisions of section 70(1), the assessee is eligible for set off of the expenditure against the profits of P-5. In support of such contention, the learned authorised representative relied upon a decision of the hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Prasad Productions P. Ltd. [1989] 179 ITR 147 (Mad) has held that even if expenditure relating to positive prints, etc., is not allowable under rule 9A, but, the same can be allowed under section 37(1) of the Act, as it is incurred in connection with the business. The relevant observation of the High Court is extracted hereunder for convenience (page 156) : Only during the course of the pendency of the appeal before the Appellate Assistant Commissioner, the assessee exercised an option as per rule 9A of the Rules and under Explanation (ii)(a) to rule 9A(1) of the Rules, the expenditure incurred for the preparation of the positive prints of the film could not be included within the expression 'cost of production'. It is for this reason that such expenditure is char acterised as post-production expenditure. Ordinarily, all expenditure incurred on the production of a film would be its cost of production, but that would exclude the expenditure incurred for the preparation of the positive prints of the film so produced. The purpose of obtaining positive prints is to exhibit the film produced which is a stage after the completion of the production. In any g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d superannuation fund nor could be allowed under section 37 of the Act, the payment was allow able under section 28 of the Act. On a reference, it was held that the nature of payment being one described in section 36(1)(iv) of the Act and as it could not be deducted under that section, it cannot be held to be deductible under section 28 of the Act on general principles in arriving at the true profits and gains of the business in a commercial sense. In the view we have taken that the expenditure incurred in connection with the obtaining of positive prints is really in the nature of post-production expenditure and that there is no provision in the Act or the rules obliging the authorities to disallow such expenditure, the claim of the assessee that such expenditure would fall under section 37 of the Act is, in our view, well-founded. We, therefore, answer the second question referred to us in the affirmative and against the Revenue. 10. The same view has been expressed by different Benches of the Tribunal in the decisions cited by the learned authorised representative. It is not disputed either by the Assessing Officer or by the Commissioner of Income-tax (Appeals) that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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